Everything about Market Capitalization totally explained
Market capitalization (aka
market cap,
mkt cap or
capitalized value) is a measurement of
corporate or
economic size equal to the
share price times the number of
shares outstanding of a
public company. As owning
stock represents
owning the company, including all its
assets, capitalization could represent the public opinion of a company's
net worth and is a determining factor in
stock valuation. Likewise, the capitalization of
stock markets or
economic regions may be compared to other
economic indicators. The total market capitalization of all publicly traded companies in the world was US$51 trillion in
March 2007 .
Valuation
Market capitalization represents the public consensus on the value of a company's equity. A corporation, including all of its
assets, may be freely bought and sold through purchases and sales of stock, which will determine the price of the company's shares. Its market capitalization is this share price multiplied by the number of shares in issue, providing a total value for the company's shares and thus for the company as a whole.
Many companies have a dominant shareholder, which may be a government entity, a family, or another corporation. Many stockmarket indices (
S&P 500,
Sensex,
FTSE,
DAX,
Nikkei,
MSCI) adjust for these by calculating on a "free float" basis, ie the market capitalization they use is the value of the publicly tradable part of the company.
Note that market capitalization is a market estimate of a company's value, based on perceived future prospects, economic and monetary conditions, and therefore largely independent of a company's history. Stock prices can also be moved by
speculation about changes in expectations about profits or about mergers and acquisitions.
It is possible for stock markets to get caught up in an
economic bubble, like the steep rise in valuation of technology stocks in the late 1990's followed by the crash in
2000. Speculation can affect any asset class, such as
gold or
real estate. In such events, it's normal for companies to become valued past momentum extrapolated into the future justified by a convincing story as well as success, until the world mean-reverts causing significant losses. Conversely, stock markets will usually be primary transmission mechanism for most of the surprises that occur in the world's economy .
Categorization of companies by capitalization
The range of the capitalization serves as a handy way to classify companies in general:
Nano-Cap
Nano-Cap is capitalization below $50 million.
Micro-Cap
Micro-Cap is capitalization between $50 and $250 million.
Small-Cap
Small-Cap is capitalization between approximately $250 million and $2 billion
Mid-Cap
Mid-Cap is capitalization between approximately $2 billion and $10 billion
Large-Cap or blue chip
Large-Cap or
blue chip is capitalization over approximately $10 billion (Megacap over $1 trillion)
Further Information
Get more info on 'Market Capitalization'.
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